General Electric’s (GE, Financial) integration deal with Alstom (AOMFF, Financial) has invited a lot of concerns among European Union (EU) antitrust regulators. The regulators fear that the combination would results in the elimination of a GE competitor in the gas turbines space which would increase the American conglomerate’s pricing power. This could lead to price increase, something that the regulators don’t want to happen. As such, the regulatory body announced that they would examine the $17 billion deal more intricately to uncover its consequences better. What does this mean for General Electric? Let’s find out.
Increasing pressure on General Electric
The increased regulatory scrutiny surely has heightened pressure on General Electric to offer greater concessions to make the deal more amiable for Alstom and reduce regulatory concerns. This isn’t the first time European regulators have shown concerns over GE’s acquisition ambition. Long back in 2001, the company’s proposal to acquire Honeywell International Inc. (HON, Financial) was turned down by the European regulators, though the American regulatory body gave its consent. However, GE has successfully completed 50 odd acquisition deals ever since in the region. So the company remains optimistic regarding the Alstom deal too.
However, it should be noted that GE’s faced resistance from the regulators and Alstom’s board with regards to the deal last year too. As a result the Fairfield based company modified the terms of the deal that not only impressed Alstom’s board and stakeholders, but appeased the concerns of the European bureaucrats too. As per the altered deal, GE proposed to set up three 50:50 joints ventures with Alstom combining the company’s grid unit, the off-shore wind and hydro unit, and the nuclear power facility.
Alstom deal is crucial for future growth
General Electric is extremely serious about joining forces with Alstom since the arrangement would help the company inch closer to its target of solidifying its industrial base and lowering dependence on GE Capital. Through the deal, GE would attain Alstom’s highly coveted energy assets, leaving Alstom’s rail unit as a separate business.
However, the European Commission has expressed worry regarding the takeover as it would mean reducing competition in the market. One of GE’s three main rivals dealing in heavy-duty turbines would come under the company’s control, which could provide greater power to the company. The other two players making turbines are Siemens (SIEGY, Financial) and Mitsubishi Hitachi Power Systems. Margrethe Vestager, competition commissioner of European Union, said:
“We are concerned that the proposed acquisition might not only lead to higher prices but also result in less choice for customers and less innovation in the sector.”
GE is confident about the result
But General Electric is confident that the deal will be completed eventually although the commission has raised issues. Once the regulators are satisfied with their investigation, the deal will be given a go-ahead signal. The agreement of the European Commission is among the final clearances that General Electric needs to conclude the deal. The commission has the power to block the deal in case it believes it would have a negative bearing on competition. The deal has already won the favor of the French government.
GE believes that the commission, too, would shower its blessings. The company says that its alliance with Alstom would prove beneficial to the employees, customers, and Europe. So the European antitrust authority should shed all worries regarding any competitive threat. The investigation program is part of the European Commission’s normal procedure for any deal coming by, and GE stays assured to receive a green signal and conclude the deal by the middle of this year.
